Young Bui
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ROM 1990 TO 2007, the demand for silver outpaced the supply. In order to balance out the shortage, governments had to inject silver into the market from their strategic stockpiles. The United States government at one time had 6 billion ounces of silver in its stockpile. By 2007, the US government had no silver left in its stockpile. Ninety-five percent of all silver that has been mined for the past 5,000 years has been consumed and is no longer available for use. There are an estimated 1 billion ounces of silver available above ground now.
Silver became a vital industrial material in the past century due to its superior properties. It’s the best conductor of electricity, the best reflector of light, the best heat transfer agent, a necessary reagent in plastic manufacturing, and an important photographic chemical. Silver is also a bactericidal agent that is used in medical applications and for water purification.
In 2008, the world silver demand was as follows: 53 percent of all silver demand was for industrial use, 24 percent for jewelry and silverware, 13 percent for photography, 7 percent for coins, and 3 percent for investment. Most of the silver used in industrial applications now is for electrical components, such as cell phones, laptops, iPods, televisions, and any appliances that have an electronic motherboard. The future of electric cars and silver-zinc batteries will increase the consumption of silver.
There are a few industrial applications that are at an early stage right now that will have exponential growth by 2020. The first is solar energy. Producing one gigawatt of solar power takes 80 tons (or 2.56 million ounces) of silver. At present, solar-generated energy totals only about 7 gigawatts. However, India, China, and the United States plan to increase their solar output to 20 GW, 30 GW, and 30 GW respectively by 2020. Solar demand for silver could reach 130 million ounces per year around 2014 and continue through 2020.
The amount of silver used in medical applications continues to grow. The medical use of silver is expected to increase by 100 million ounces by 2020. The FDA has approved adding silver to bottled water to help kill bacteria. The official outlook is for food hygiene and water purification applications to reach 90 million ounces per year by 2020. The use of silver in RFID (radio frequency identification device) tags and textiles is expected to reach 10 million ounces and 30 million ounces respectively by 2020.
The total silver use forecast for these new startups by 2020 is around 350 million ounces a year. The world silver production for 2009 was about 680 million ounces. It is expected to reach 790 million ounces by 2020. Leaving all other industrial use constant for the next ten years, the rate of increase of industrial use is much greater than the rate of silver production. This alone will create a shortage of silver within the next ten years.
The primary driver for the upside pressure on the silver market is the increase in investment demand for commercial silver bars, the type of silver used in industry but held for investment purposes. About 600 to 700 million ounces of silver exists in 1000-ounce bar form. The 3 percent demand for investment silver does not include all the ETFs (exchange-traded funds) that have begun trading since the middle of 2006. We started with about 250 million ounces of silver in commercial bar form (1000 ounces). By the end of 2009, that total had reached 600 million ounces, an increase of 350 million ounces over three years. We can basically state that investment demand for silver in commercial form has been increasing at about 100 million ounces per year for the past three years. What will happen if the investment demand for silver in 2010 is 100 million ounces of physical silver? There will not be any silver left for next year.
Why is the price of silver so low? The reason is that it is being manipulated by J.P. Morgan Bank. On February 3rd, Andrew Maguire, a metal trader, wrote to a senior investigator for the Commodity Futures Trading Commission’s Enforcement Division, giving him a “heads up” for a “manipulative event” signaled for February 5th. He warned the CFTC that J.P. Morgan was about to manipulate the price of silver downward after the release of non-farm payroll data on February 5th. Andrew said that the takedown would happen regardless of whether employment was better or worse than expected and that the price of silver would be flushed to below $15 per ounce. During the next couple of days, silver was crushed from $16.17 per ounce down to a low of $14.62 per ounce.
Despite all of the evidence given by Andrew Maguire to the CFTC of gold and silver manipulation, Andrew wasn’t allowed to speak at last week’s CFTC hearing on limiting gold and silver positions held by banks like J.P. Morgan. Bill Murphy of the Gold Anti-Trust Action Committee (GATA) was allowed to speak (within a five-minute time constraint) and to present some of Andrew Maguire’s evidence, but right when his presentation began there was a technical failure of the live television broadcast, which was mysteriously fixed as soon as he was done speaking. Bill Murphy was scheduled for several mainstream media television interviews after the CFTC hearings, but they were all abruptly cancelled at once. A couple of days after the CFTC meeting, Andrew Maguire and his wife were involved in a bizarre hit-and-run car accident in London, where a second car coming out of a side street struck their vehicle. I’m not a person to believe in conspiracy theory, but when you consider that this is a potential multi-trillion-dollar fraud that could bring down the world’s financial system, it really makes you think.
The CFTC is under pressure not to do anything about the manipulation because the lower the gold and silver prices are, the stronger the U. S. dollar appears to be. If we saw an explosion to the upside in gold and silver prices, it would result in a complete loss of confidence in the U. S. dollar. Either the demand for silver by industrial use or by investment will one day put a squeeze on the price of silver. When the day comes when industry leaders ask their governments to stop minting silver coins because they need this silver, the price of silver will skyrocket, and the premium for silver eagle coins will also increase.
There has been an increase in individual demand for physical silver the last couple of years. In the last quarter of 2009 alone, the US mint produced 8.9 million ounces of silver eagle, the equivalent of the entire year for 2005. In the first quarter of 2010, the US mint produced 9.3 million ounces of silver eagle. The entire US mining supply of silver per year is 40 million ounces. This means that almost the entire amount of silver mined in the US will be used for minting silver eagle coins. There has been other evidence that individual investors are taking physical delivery of silver from the Comex instead of settling for cash. So far 12.5 million ounces of silver have been withdrawn from the SLV ETF to put into the Comex for delivery. This tells you that they are short of silver in the future trading Comex.
I hope this article has enlightened you to the significant investment value of silver.
April - June 2010
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The primary driver for the upside pressure on the silver market is the increase in investment demand for commercial silver bars, the type of silver used in industry but held for investment purposes.
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